Supply chain management of vietnam’s garment products and sustainable supply chain issues in the garments industry

Supply Chain Management of Vietnam’s Garment Products and Sustainable Supply Chain Issues in the Garments Industry. Chapter 1: Vietnam’s Garment Supply Chain: The Case of Viet Tien Garment Corporation Supply Chain Management Chapter 2: The Benefits to Improved Sustainability of Garment Supply Chain Chapter 3: Challenges Facing Vietnamese Garment Supply Chain in Improving Sustainability Chapter 4: Barriers Restrict Recycling or Remanufacturing of Garment Products in the Practice of Vietnam

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FINAL REPORT Supply Chain Management of Vietnam’s Garment Products and Sustainable Supply Chain

Issues in the Garments Industry

Hanoi - 2022

Introduction 1

Chapter 1 Vietnam’s Garment Supply Chain: The Case of Viet Tien Garment Corporation Supply Chain Management 2

1.1 Vietnam's textile and garment export market in the context of Covid-19 2 1.2 Overview: Supply chain of garment export products 3

1.3 Viet Tien Garment’s supply chain management during Covid-19 4

1.3.1 Company Overview 4

1.3.2 Procurement management 4

1.3.3 Manufacturing management 6

1.3.4 Distribution management 7

Chapter 2 The Benefits to Improved Sustainability of Garment Supply Chain .9 2.1 Sustainable Supply Chain Issues in the Garments Industry 9

2.2 Benefits to improved sustainability of a garment supply chain 9

Reduce environmental pollution 10

Increase consumer satisfaction 10

Cost optimizations 10

Chapter 3 Challenges Facing Vietnamese Garment Supply Chain in Improving Sustainability 11

Chapter 4 Barriers Restrict Recycling or Remanufacturing of Garment Products in the Practice of Vietnam 13

Conclusion 15

Reference 16

List of Table

Table 1.1 Vietnam's textile and garment export market 2Table 4.1 Barriers to implementing circular economy practices in the fashionindustry 13

List of figures

Figure 1.1 The supply chain in the garment sector 3Figure 1.2 Viet Tien’s logo 4Figure 1.3 Raw materials storage at the warehouse 6

The Vietnamese economy's deep integration into the global economy has opened upfavorable opportunities for Vietnamese enterprises to promote supply chain activities, expandconsumption markets and improve the competitive force Despite the disruption of supplychains as a result of the Covid-19 pandemic, the garment sector is still strongly rising up andhas the second-largest portion of revenues in total exporting products in Vietnam

With outstanding experience in manufacturing garment products, Viet Tien GarmentCorporation is one of the leading brands in the office fashion industry in Vietnam over thepast 30 years Such success is largely due to Viet Tien's efficient supply chain management

Therefore, to broaden the understanding of supply chain management in the garmentindustry as well explore the benefits of using a sustainable garment supply chain in Vietnam,

I choose the topic “Supply Chain Management of Vietnam’s Garment Products andSustainable Supply Chain Issues in the Garments Industry”, which include four chapters:

Chapter 1: Vietnam’s Garment Supply Chain: The Case of Viet Tien GarmentCorporation Supply Chain Management

Chapter 2: The Benefits to Improved Sustainability of Garment Supply Chain

Chapter 3: Challenges Facing Vietnamese Garment Supply Chain in ImprovingSustainability

Chapter 4: Barriers Restrict Recycling or Remanufacturing of Garment Products inthe Practice of Vietnam

Chapter 1 Vietnam’s Garment Supply Chain: The Case of Viet Tien Garment Corporation Supply Chain Management

1.1 Vietnam's textile and garment export market in the context of Covid-19

2020 is a special difficult year for Vietnam's textile and garment industry whenthe market has many fluctuations and unpredictable challenges Under the impact ofthe Covid-19 pandemic, the textile and garment industry is one of the industries thatsuffer the largest losses along with the tourism, aviation, and footwear industries.Difficulties come from the lack of raw materials and slowing demand from the EUand the United States in the first quarter of 2020 Also, the change in consumers’behaviors toward unnecessary products, made Vietnamese garment enterprises havefaced the decline of orders

Vietnamese enterprises have turned around step by step to meet the world'sconsumption demand, maintain production, export, and retain workers by switching toproduction and increasing exports of necessary goods for preventing pandemic.Generally, in 2020, Vietnamese textile and garment exports to most markets decreasedcompared to 2019 A significant decrease must be mentioned in some markets such asTanzania, which decreased by 77%; Angola down 75%; Argentina down 44%;Senegan, Philippines, Slovakia all decreased by more than 39%; some other Europeanmarkets decreased significantly such as the UK, Greece, Finland, Spain, Norway,Austria, down from 28 - 37% (Bo Cong Thuong, 2021)

Table 1.1 Vietnam's textile and garment export market

(Source: Bo Cong Thuong, 2021)

1.2 Overview: Supply chain of garment export products

Figure 1.1 The supply chain in the garment sector

(Source: Nordås, 2004; Stotz & Kane, 2015)

As seen in Figure 1.1, each step in the supply chain is so interconnected thatthe flow of information, product, or capital works in both directions However, it alsodepends on the customer's preference for fashion trends and the simultaneousemergence of "fast fashion" Based on forecast demand, textile plants will collect rawmaterials and manufacture textile products for the garment industry After that, thegarment sector will be in charge of cutting fabrics, assembling the garments, anddelivering the final product that meets the requirements of retail stores Then, with thehelp of distribution centers, intermediaries ensure a smooth flow of finished productsfrom the raw material collection to display in retail stores

1.3 Viet Tien Garment’s supply chain management during Covid-19

1.3.1 Company Overview

Viet Tien Garment Corporation (VTEC) was established in 1975 With themission of constantly improving customer satisfaction with the best products andservices, Viet Tien is now one of the leading enterprises in Vietnam's textile andgarment industry From a state-owned company established during a difficult period,Viet Tien surpassed the revenue milestone of VND 9,700 billion in 2018, becomingthe only garment company honored in both rankings as the Top 50 leading brands in

2019 and Top 50 most valuable brands in Vietnam announced by Forbes Vietnam andBrand Finance (VnExpress, 2019) Viet Tien's presence in both of the above listsshows the company's position in both domestic and international markets This is alsothe result of efforts to build a strong and reputable brand with consistency in not onlybranding but also the supply chain of the company

Figure 1.2 Viet Tien’s logo

(Source: Viet Tien Corporation Garment, n.d.)

1.3.2 Procurement management

Procurement is an indispensable activity in any business type and any size ofthe organization Purchasing costs usually account for a significant proportion of thetotal cost of the supply chain Therefore, the role of purchasing management in thesupply chain is extremely important, which is closely related to business performance

of VTEC

Choosing supplier

The procurement process of the company is implemented based on purchasingsourcing, which have both domestic and international purchasing Inputs materials inthe supply chain at VTEC include: raw materials (yarns, fabrics ), chemicalssubstances for dying, equipment - spare parts and so forth Domestically, Vinatex isthe main supplier of yarn for VTEC and also the largest supplier of many other textileenterprises in Vietnam (Hai Yen, 2021) In addition, Viet Tien mainly imports rawmaterials and accessories from China, which have large supplies with stable quality

In fact, 63% of textile materials of Vietnam garment sector is imported from China, sowhen the pandemic broke out in early 2020, the supply of raw materials from Chinawas disrupted due to the lockdown in Wuhan, making it difficult for VTEC in theprocurement process (Giap, 2021) In order to be proactive in terms of raw materials,shorten production and delivery time, VTEC has invested in establishing FabricsFactory - Viet Thai Tech, a joint venture between Viet Tien Garment Corporation andtwo strategic partners, Luenthai and Newtech (Ha, 2020) Besides, VTEC (Vietnam)also cooperates with Tung Shing Sewing Machine Company (Hong Kong) to provideand install equipment for the garment industry (Tung Sing Group, 2018)

Contract negotiations

The Company has applied the principle contract to the essential inputs for theCompany's main production activities such as some basic yarns This is a type ofcontract where the Company and the supplier are jointly linked and have clearresponsibilities such as: For the Company (the purchaser) will build up the purchasingdemand for the whole year, commit to receiving the goods on time as planned agreedand paid on time At the same time, the supplier (selling unit) will stabilize the sellingprice, always have ready stock of goods to meet the buyer's delivery plan as planned.Stabilizing selling prices as well as finding the most competitive raw materialsuppliers are very important in effective management of production and businessactivities of the Company

Delivery and payment

After placing an order, due to having a long-term relationship with suppliers,especially domestic suppliers such as Vinatex, the goods are quickly delivered Inorder to reduce purchasing costs, Viet Tien has cooperated with MS Shipping(England)- a company specializing in the sea and air services business to support theimport and export procedures, delivery of goods abroad (Công Ty M&S VTECShipping, n.d.) After the materials are shipped to VTEC, the company will check thequality and pay according to the contract

Storage

For materials with unstable supply and fluctuating prices, the company hasactively imported and reserved them The demand for the reserve is planned based onthe production needs of the factories to ensure timely response to customer demandwith the most reasonable and economical amount of stock In addition, for other yarnmaterials with stable supply, the company only imports and stores enough to meet thedemand when there are orders from customers

Figure 1.3 Raw materials storage at the warehouse

(Source: Viet Tien Garment Corporation, n.d.)

1.3.3 Manufacturing management

Design

The characteristics of the garment market is the rapid changing to meet trends

in the fashion industry, and the short product life cycle Therefore, clothing design is avery important step in production process in Viet Tien in particular and the garmentindustry in general From the very first day of its establishment, the companydetermined that it needed to have an in-depth design department, supported byspecialized software Currently, the company has more than 300 designers and designpatterns are formed from three main sources: (1) from the creativity and ideas of thedesign staff; (2) from catalogs and (3) from customer samples sent to the company

Manufacturing

Viet Tien is the pioneer of applying new technologies as well as investing inLean Manufacturing technology Viet Tien Garment Corporation has affirmed thatLean Manufacturing helped the company grow 14% in 2013 compared to 2012 Spirit

of workers is better because they have more time to take care of themselves and theirfamilies, which results in a productivity performance (Oanh, 2015)

Viet Tien has also invested in modern equipment in production such asautomatic plotting/spreading/cutting system, automatic production line system andother modern specialized machinery and equipment such as surgical machines,automatic bags, hand-tracing machines, programming machines Besides, thecompany also receives investment programs in equipment and technology of SouthIsland Group, of Japanese corporations such as Itochu, Mitsubishi, Maruberni,Sumitomo, Sandra As a result, productivity and quality are significantly increased,satisfying the needs of customers and the market

company, managing 28 production and business hubs, including 8 affiliated units, 12member units, 2 foreign joint venture companies, 2 units of business cooperation and

4 subsidiaries (Viet Tien Garment Corporation, nd-a)

● Agents

Viet Tien's agents have contributed significantly to the circulation of goods aswell as promoting a more flexible distribution process to consumers Since 2009, VietTien - with the brands Ttup, SanSciaro, Manhattan, VietTien SmartCasual and VietLong - has opened general agents in Cambodia, Laos, China, in addition to morethan 1,300 stores and agents distributed across the country

● Retailers

Viet Tien's retail system is spread across the country with the number of nearly1,400 stores and agents so far In addition to the chain of stores and agents selling VietTien's products, the company continues to expand and develop distribution channels,put products in 48 shopping centers and coordinate with other garment stores todistribute Vietnamese garment products to ordinary consumers more widely

● Customers

Those who directly use Viet Tien's products They create the company's targetmarket and are also the factors that directly affect the sales of intermediaries and thecompany

Distribution channel

Viet Tien Garment’s distribution channel includes a system of stores andagents distribution system Retail stores receive products directly from manufacturersand then distribute them directly to consumers or distribute to agents These storeshave a large proportion of goods consumption for Viet Tien in the entire distributionsystem This is also where Viet Tien can directly approach customers to collectfeedback from them

Currently, Viet Tien is one of the businesses with the largest store system in theindustry, with nearly 1,400 stores introducing and selling products across provincesand cities across the country, including 8 brands namely Viettien, Viettien

Smartcasual, Viettien Kids, Camellia, Skechers, etc (Minh, 2021) In big cities such asHanoi, Ho Chi Minh city, in addition to retail stores on major streets, Viet Tien storesare also located in large shopping centers such as: Trang Tien Plaza, Keang Nam,Grand Plaza, Vincom Ba Trieu, etc

Viet Tien's agent system is also present in 24 districts of Hanoi with 105 agents(Viet Tien Garment Corporation, nd-b), although it does not have high sales volume

as in stores, it has the advantage of being flexible, easy to penetrate into the residentialarea community and meet the needs of customers In addition, from 2009 until now,Viet Tien - with the brands Ttup, SanSciaro, Manhattan, VietTien SmartCasual andViet Long - has opened general agents in Cambodia, Laos, and other Asian countries

Chapter 2 The Benefits to Improved Sustainability of Garment Supply Chain

2.1 Sustainable Supply Chain Issues in the Garments Industry

The garments industry is one of the main contributors to the world’s largestpollution due to the tons of water usage producing excess carbon dioxide gas,excessive use of energy to produce clothing, non-renewable materials for fibre, andenvironmental pollution with harmful chemicals

Vietnam garments industry with about 6,000 garment factories, providesemployment to approximately 2.5 million people (Chi, 2017), which is about 2.6% ofthe Vietnam population, are currently struggling with environmental problems relating

to the manufacturing of textiles and garments According to RMIT Universityresearchers, although Vietnam is among the top five exporting countries of textilesand garments globally, the concept of sustainable supply chains is new to manymanufacturing players in the country (RMIT University, 2019) Therefore, reducingenvironmental pollution and improving sustainability are the key factors forVietnam’s garment manufacturing industries to maintain their competitive edge